Modvat credit for captive power plant components was admissible despite partial wheeling of electricity outside the factory.

Modvat credit under Rule 57Q and Rule 57AB was available on parts, components, spares and accessories used for a captive power plant when the plant was used in the manufacturing process. The scheme did not require the capital goods themselves, or the electricity generated, to be excisable, and Rule 57R did not add a separate condition to deny otherwise admissible credit. The fact that some electricity was wheeled out of the factory did not change the character of the plant as capital goods used in manufacture. On the stated facts, the substantive credit conditions were satisfied and the credit was admissible.

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Issues: Whether Modvat credit was admissible on parts, components, spares and accessories used for a captive power plant when the electricity generated was partly wheeled out of the factory and the Revenue relied on the non-excisability of electricity and the conditions in Rule 57R to deny credit.

Analysis: The credit scheme under Rule 57Q and Rule 57AB covered capital goods used in the manufacture of final products, and there was no requirement that the capital goods themselves or the electricity generated by the captive power plant had to be excisable. Rule 57R did not create an additional condition precedent for denying otherwise admissible capital goods credit. The use of electricity within and outside the factory did not alter the character of the plant as capital goods used in the manufacturing process, and the Revenue failed to show non-fulfilment of the substantive requirements of the credit provisions.

Conclusion: Modvat credit on the captive power plant components, spares and accessories was admissible and could not be denied on the grounds urged by the Revenue.

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